Tax season is approaching, and millions of workers could soon claim a “tip tax-free” deduction that will give them a tax credit on their 2026 returns. But some experts question which workers will benefit from the policy.
The provision, enacted by President Donald Trump’s “Big and Beautiful Act,” allows certain workers to deduct up to $25,000 in “qualified tips” annually from their federal returns from 2025 to 2028.
The tip deduction is phased out or reduced once your modified adjusted gross income exceeds $150,000 for single filers and $300,000 for married couples filing jointly.
Both President Trump and former Vice President Kamala Harris advocated “exempting tips from taxes” during their 2024 presidential campaigns. Republicans enacted capped deductions in early July through a multitrillion-dollar tax and spending package.
About 6 million workers report tipped wages, according to estimates released by the IRS in November. But not all tipped workers qualify.
Those with the lowest income cannot claim that their tips are not taxed.
Both parties promoted a “tip tax-free” deduction as a tax cut for working families. But experts say the country’s lowest earners may not be able to claim it.
Elena Patel, co-director of the Urban-Brookings Tax Policy Center, told CNBC that “low-income households already pay no federal income taxes, so they don’t benefit from the tip tax exemption.”
In 2025, workers will no longer have to pay federal income taxes until their income exceeds the standard deduction ($15,750 for single filers and $31,500 for married couples filing jointly). Additionally, certain tax breaks, such as the Earned Income Tax Credit, can reduce your debt below zero.
In 2022, more than one-third (37%) of tipped workers paid no federal income taxes because of their low incomes, according to a 2024 report from the Yale Budget Lab, a nonpartisan policy research center.
An analysis by the Tax Policy Center, a nonpartisan think tank, found similar results. The group reported in early 2025 that only about 60% of tipped workers would benefit if tips were tax-free or exempt.
Some tipped workers don’t qualify.
At a Reserve store in Seattle, a Starbucks barista demonstrates how to brew coffee using a siphon.
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Since the policy was first introduced, there have been questions about which occupations would qualify for the “tipping tax-free” deduction.
The Treasury Department and the IRS released a tentative job list in September. However, certain workers who receive tips through so-called “specified service jobs” (SSTB) from industries such as health care, law, financial services, and the performing arts will not qualify for the tax break.
However, SSTB employees may be able to temporarily claim the 2025 deduction until the Treasury Department and IRS finalize regulations under “transitional relief” announced in November.
Garrett Watson, director of policy analysis at the Tax Foundation, said uncertainty surrounding eligibility remains and “it could confuse people about whether they’ll be eligible in the future.”
